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Q1) The Moore Company produces and sells single product. Company standard cost card for unit of product comprise the following for direct materials and direct labor:

Direct materials:4 meters at $4.00 per meter and $16.00

Direct labor:1.5 hours at $10.00 per hour and $15.00

Company controls manufacturing overhead costs with overhead flexible budget. Flexible budget for producing overhead costs for 2006 at three levels of activity (measured in direct labor hours) was given below:

Direct labor hours
Total variable manufacturing overhead cost
Total fixed manufacturing overhead cost

For product costing purposes, company applies manufacturing overhead costs to product on the basis of direct labor hours and denominator activity level of 22,500 hours (equivalent of 15,000 units of the product).

Actual operating data and cost information for the year were given below:

i) Output: 18,000 units of the product

ii) Purchased 80,000 meters of direct materials at total cost of $336,000. 70,000 meters of this material was utilized to produce 18,000 units.

iii) Incurred total direct labor cost of $277,875 for 29,250 direct labor hours worked.

iv) Incurred fixed manufacturing overhead costs of $156,000 and variable manufacturing overhead costs of $102,375.


Note: In the following computations which involve variances, point out whether a variance is favorable (F) or unfavorable (U).

Describe relationship between labor efficiency variance and variable overhead efficiency variance.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918725

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